Why Coca-Cola is Acquiring Costa

At The Coca-Cola Company, we’re continuing to evolve as a total beverage company. This means we sell Coke, of course, but also so much more.

Today, we’ve taken another important step toward becoming the total beverage company we aspire to be.

Coca-Cola has reached a definitive agreement to acquire Costa Limited, which is based in the United Kingdom and has operations across much of Europe, Africa, the Middle East and Asia Pacific. Subject to the satisfaction of customary closing conditions, we expect the transaction to close in the first half of 2019.

Why Costa? And why now?

Let’s start with the simplest question, which is why now. It’s because coffee helps us get into hot beverages. Coffee is one of the fastest-growing beverage categories in the world, at 6%. It’s also a category with many different elements, from vending to coffee shops to roast-and-ground to instant to pods and capsules.

In short, coffee is a big business with many formats. It’s also a remarkably fragmented business. No single company in the world has a strong foothold across all parts of coffee. And that includes Coca-Cola. We have great brands like our ready-to-drink Georgia coffee lineup in Japan, but Coca-Cola doesn’t have a broad, global portfolio in this growing category.

Today, with the growth in coffee and hot beverages, it’s more important than ever that Coca-Cola make a serious and significant investment in the category, because it’s the right thing to do to serve our consumers with more of the drinks they want, which in turn helps our customers.

So, why Costa? Because Costa is a good fit – and the best way – for Coca-Cola to add a global coffee platform that will complement our existing system.

Let me be very clear about why I use the word “platform” and not “brand.” A platform means Costa isn’t just one thing. Not just a brand. Not just a retail operation. Not just vending. Not just a coffee roaster.

A platform is all of those things and more. Costa is a platform with a great supply chain in coffee, a world-class roastery, a strong retail presence and a vending system. Costa has strengths in many countries and in many key distribution channels of the coffee business.

And yes, it’s a great brand. I know many people aren’t familiar with Costa, especially if they live in North and South America, where Costa isn’t part of the marketplace. But Costa has a deep heritage, especially in its home market of the UK, where it is the leading coffee company.

So, by acquiring Costa, Coca-Cola will add a retail footprint in parts of the world.

There are a couple of elements that are valuable here. Retail shops are important for sales of course, but they’re also pivotal in building a brand so it can have even more success beyond its own stores, like in immediate consumption channels.

Costa has a fresh espresso-based system called Costa Express. There are currently more than 8,000 machines already in-market. We see opportunities to expand this system in immediate consumption and experience channels.

Costa has great roast and ground beans for restaurants and cafes. The Coca-Cola system has enormous reach in many channels, and we see the potential to expand and offer these high-quality Costa coffee solutions to our existing customers. This great coffee capability will also allow us to expand at-home offerings.

Finally, Costa offers great opportunities in ready-to-drink beverages. Coca-Cola has bottled and canned coffees in a few markets – think Georgia coffee in Japan. The Costa brand has potential for expansion into ready-to-drink coffee across many markets globally.

So, Coca-Cola and Costa have remarkably complementary businesses. Costa offers Coca-Cola the best opportunities to create value in coffee. We can be better together.

This is not an acquisition where we’re looking for places to save costs in the business. We’re buying Costa to grow the business and our participation in the category.

It’s very important to me that we let Costa be Costa. We’ll operate Costa with our successful, connected-but-not-integrated model within Coca-Cola. Costa is a very different business for us, and we want current Costa employees – from executives in the UK to baristas in stores around the world – to be assured that we respect and value their expertise.

These are times of remarkably fast changes in our industry. I’m excited about Costa because it can help Coca-Cola become even better – together, Coca-Cola and Costa will take another great step as a total beverage company.

James Quincey is president and CEO of The Coca-Cola Company.

Forward-Looking StatementsThis document may contain statements, estimates or projections that constitute “forward-looking statements” as defined under U.S. federal securities laws. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “plan,” “seek” and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from The Coca-Cola Company’s historical experience and our present expectations or projections. These risks include, but are not limited to, obesity and other health-related concerns; water scarcity and poor quality; evolving consumer preferences; increased competition; product safety and quality concerns; perceived negative health consequences of certain ingredients, such as non-nutritive sweeteners and biotechnology-derived substances, and of other substances present in our beverage products or packaging materials; an inability to be successful in our innovation activities; increased demand for food products and decreased agricultural productivity; an inability to protect our information systems against service interruption, misappropriation of data or breaches of security; changes in the retail landscape or the loss of key retail or foodservice customers; an inability to expand operations in emerging and developing markets; fluctuations in foreign currency exchange rates; interest rate increases; an inability to maintain good relationships with our bottling partners; a deterioration in our bottling partners' financial condition; increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters; increased or new indirect taxes in the United States and throughout the world; failure to realize the economic benefits from or an inability to successfully manage the possible negative consequences of our productivity initiatives; inability to attract or retain a highly skilled and diverse workforce; increased cost, disruption of supply or shortage of energy or fuels; increased cost, disruption of supply or shortage of ingredients, other raw materials, packaging materials, aluminum cans and other containers; changes in laws and regulations relating to beverage containers and packaging; significant additional labeling or warning requirements or limitations on the marketing or sale of our products; unfavorable general economic conditions in the United States; unfavorable economic and political conditions in international markets; litigation or legal proceedings; failure to adequately protect, or disputes relating to, trademarks, formulae and other intellectual property rights; adverse weather conditions; climate change; damage to our brand image or corporate reputation from negative publicity, even if unwarranted, related to product safety or quality, human and workplace rights, obesity or other issues; changes in, or failure to comply with, the laws and regulations applicable to our products or our business operations; changes in accounting standards; an inability to achieve our overall long-term growth objectives; deterioration of global credit market conditions; default by or failure of one or more of our counterparty financial institutions; an inability to renew collective bargaining agreements on satisfactory terms, or we or our bottling partners experience strikes, work stoppages or labor unrest; future impairment charges; multi-employer pension plan withdrawal liabilities in the future; an inability to successfully integrate and manage our company-owned or -controlled bottling operations or other acquired businesses or brands; an inability to successfully manage our refranchising activities; failure to realize a significant portion of the anticipated benefits of our strategic relationship with Monster; global or regional catastrophic events; risks and uncertainties relating to the transaction, including the risk that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, which could result in additional demands on our resources, systems, procedures and controls, disruption of our ongoing business and diversion of management’s attention from other business concerns; the possibility that certain assumptions with respect to Costa or the transaction could prove to be inaccurate; the failure to receive, delays in the receipt of, or unacceptable or burdensome conditions imposed in connection with, all required regulatory approvals and the satisfaction of the closing conditions to the transaction; the potential failure to retain key employees as a result of the proposed transaction or during integration of the businesses and disruptions resulting from the proposed transaction, making it more difficult to maintain business relationships; the response of customers, policyholders, brokers, service providers, business partners and regulators to the announcement of the transaction and other risks discussed in our company’s filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2017, and our subsequently filed Quarterly Reports on Form 10-Q, which filings are available from the SEC. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. The Coca-Cola Company can give no assurance that the expectations expressed or implied in the forward-looking statements contained herein will be attained and undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.